Mortgage Acronyms Defined

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					                    Mortgage Acronyms Defined

APR: Annual Percentage Rate. This expresses the annual cost of borrowing
as a percentage of the loan amount. It factors in not only the interest rate, but
also the fees associated with the loan. Because federal law requires lenders
to use a similar formula to calculate APR, consumers can use it as a method
for comparing the true cost of mortgages.
ARM: Adjustable rate mortgage. The interest rate on an ARM changes
periodically over the life of the loan.
CD: Certificate of deposit. Some adjustable rate mortgages are CD-indexed
(see next entry), which means their interest rate fluctuates every six months
according to the current rate offered on these investments.
CODI: Certificate of Deposit Index. The CODI is the average yield on
three-month CDs over the past year, as reported by the Federal Reserve. It is
one of several indexes commonly used to set interest rates on adjustable rate
COFI: Cost of Funds Index. This is an average of rates paid on checking
and savings accounts by a regional sample of U.S. banks. It is one of several
indexes commonly used to set interest rates on adjustable rate mortgages.
CRC: Credit reporting company. CRCs collect information about personal
credit and prepare reports that help lenders assess the risk of granting a
mortgage to a given borrower.
ECOA: Equal Credit Opportunity Act. This federal law ensures that
mortgage lenders do not discriminate against potential borrowers based on
race, color, religion, national origin, age, sex, marital status or receipt of
income from public assistance programs.
FHA: Federal Housing Administration. The FHA is a division of the
Department of Housing and Urban Development whose role is to insure
residential mortgages and to set underwriting standards for lenders. An FHA
loan is one that meets these standards.
FICO: Fair Isaac Corporation. This company pioneered the practice of
credit scoring, an important part of the mortgage approval process. Credit
scores calculated using the company’s formula are called FICO scores.
GFE: Good Faith Estimate. The government requires lenders to give
applicants a Good Faith Estimate of all the costs associated with a mortgage,
allowing borrowers to compare various offers. A lender has three days to
produce a GFE after you submit an application, and it is a good idea to wait
until you receive it before committing to a particular mortgage.
GPM: Graduated payment mortgage. With this type of mortgage, the
payments start low and increase for a specified period before leveling off.
The low introductory payments do not cover all of the interest due, so a
GPM usually results in negative amortization -- that is, the principal
increases with each payment rather than being reduced.
HELOC: Home equity line of credit. A HELOC is a revolving line of credit
that is secured by your property. It is considered secondary to a first
mortgage, and therefore typically carries a higher rate.
HUD: Housing and Urban Development. This department of the federal
government insures mortgages and sets standards for housing. Borrowers
will encounter this acronym when they receive a HUD-1 statement, which
itemizes all settlement costs due when a mortgage closes.
LTV: Loan-to-value. A borrower’s LTV, expressed as a percentage, is the
ratio of the mortgage amount to the appraised value of the property. A
homeowner who has a $80,000 mortgage on a $200,000 property has an
LTV of 40 percent.
LIBOR: London Interbank Offered Rate. This figure is based on wholesale
money markets in the United Kingdom. It is one of several indexes
commonly used to set interest rates on adjustable rate mortgages.
P&I: Principal and interest. If the monthly payment on a mortgage is
expressed as P&I, it does not include taxes and insurance (see PITI, below).
When comparing mortgages, it is important to take this into account, as
other offers may build in these other components.
PITI: Principal, interest, taxes and insurance. PITI mortgage payments
include all four of these components (see P&I, above).
PMI: Private mortgage insurance. When obtaining a mortgage with a down
payment of less than 20 percent, lenders typically require borrowers to pay
PMI to insure against the risk of default. Annual premiums are typically 0.5
percent of the loan amount.
RESPA: Real Estate Settlement Procedures Act. This consumer-protection
law requires lenders to disclose (upon request) all of the costs involved in
settling a loan and prohibits kickbacks that may increase these costs.
TIL: Truth in Lending. The federal Truth in Lending Act requires lenders to
provide a statement that includes the information consumers need to
properly compare mortgage offers. For example, the cost of lending must be
expressed in dollars and as an annual percentage rate.
VA: Department of Veterans Affairs. This federal government agency
guarantees mortgages that assist eligible veterans in buying homes.

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